Healey Weighs Bank and Gambling Machine Taxes to Fill Budget Gap

Chancellor John Healey is weighing new taxes on banks and gambling machines as he looks for ways to raise money in this week's Budget without breaking Labour's pledge not to raise income tax, according to BBC Verify analysis published Oct. 25.

How large is the chancellor's budget shortfall?

Economists estimate the government's fiscal "headroom" — the buffer it keeps to meet its borrowing rules — may have halved over the past six months, from roughly £24bn to as low as £11bn, BBC News reports. Part of the drop stems from rising interest rates the government pays to borrow from private investors. Healey faces pressure to rebuild that cushion while also finding money for cost-of-living support and defense spending.

What has Labour ruled out?

Labour's 2024 manifesto commits the party to not raising the rates of income tax, VAT or National Insurance. Government sources have also ruled out increasing capital gains tax and extending a so-called mansion tax, both of which had been floated as options, according to the BBC.

Could banks face higher taxes?

Bank profits have climbed in recent years as lenders charged higher interest rates on loans, and bank executives widely expect Healey to target the sector in this week's Budget, the BBC reports. The think tank Tax Policy Associates estimates that raising the surcharge banks pay on corporation tax from 3% to 5.5% could generate an additional £1bn to £2bn a year for the Treasury.

A higher levy would initially cut into profits banks distribute to shareholders, some of whom are wealthy investors, though ordinary savers with pension funds holding bank shares could also be indirectly affected. Banks have warned that additional taxes could discourage investment in the UK and cost jobs. Research cited by the BBC also suggests lenders could pass part of the burden to customers through lower savings rates or higher borrowing costs.

Could gambling machines be taxed more?

Former Prime Minister Gordon Brown has urged Healey to raise taxes on electronic gaming machines found in betting shops and adult gaming centers, some of which offer payouts of £500 per game, citing harm from problem gambling.

The Social Market Foundation estimates that doubling the tax on these machines from 20% to 40% could raise between £275m and £460m, depending on how gamblers respond. The foundation's research found the machines are increasingly clustered on some of the UK's most deprived high streets, and that one in four people who play casino-style games on them gamble at risky or harmful levels.

The gambling industry counters that a tax increase could make the machines unprofitable, forcing betting shop closures, the BBC reports. Gamblers could also see the cost passed on through worse odds — an outcome anti-gambling groups say might discourage additional play.

What happens next?

Healey is expected to deliver the Budget on Wednesday. Whether he turns to banks, gambling machines, both, or other measures not yet disclosed will determine how much of the headroom gap gets closed without touching income tax, VAT or National Insurance rates.